Everyone's looking at housing and saying it's too high priced and labor costs too much in the materials too much and the land
is too much and they all sit there and say isn't that terrible. What are they going to do about it. That was pure refrain of
Renfro at Boston appearing on Wall Street way back in 1976 and it looks like we're back to some version of that world again
with higher prices and higher input costs for housing. But a slowing economy and Fed Chair Jay Powell told us this week a
slowing housing market as well. Still with us are Christina Hooper of Invesco and Jim Macdonald of Northern Trust. Jim this
is exactly where you left us off in the housing market. We heard Jay Powell this week say yes it is slowing. We could even have
housing prices go down at least in some markets. How big a drag. Potentially even a danger for the economy. Is the housing
market. I think the danger is more from a volume standpoint than it is
from the price standpoint. If you think about housing today it's about 1 1/2 percent of the economy. It got to six and a half
during the bubble. So we're nowhere close to that level of an impact. And what I think will provide some cushion to the
downside on prices is inventory is incredibly low. Vacancies are very low. So while the jump in mortgage rates really hurts
affordability there is just a mismatch between demand and supply that I think would put some downside underneath roasts. And I
think it's going to take a long time to work through that and get to the point where supply meets demand especially given all
the supply chain issues we're currently experiencing. It's just not an environment in which we're going to see a lot of homes
built especially first time home buyers homes. So Christine give us a little investment ISE here. Right. That's what we really
want. We're saying we're clearly going into a downturn. We don't know how bad it'll be at the same but we know we'll come out at
some point. As an investor what do I do in the short intermediate term to make sure I'm protected. But as important
perhaps more important what I do to position myself to come out of that downturn stronger than ever. Well I think it's a great
question. I think it's great to look at it essentially in two phases because what we're experiencing right now is this
significant drop in the stock market and actually a significant stop us drop for some fixed income. And what has driven that is
expectations about an economic slowdown. Whether or not it's an actual recession a slowdown. We know that markets tend to signal
economic events before they happen. So I think that before long certainly before the end of the year we'll start to see a start
stock market recovery in anticipation of an economic recovery next year. And so I think we have to keep that in mind. Too
often investors have gotten spooked. Look at the global financial crisis. How many people got out towards the bottom
locked in losses. Think it's critical to be forward looking and think of this timeframe as actually a time to start looking for
opportunities to start dollar cost averaging. I think you want over the shorter term to have a pretty neutral stance when it
comes to risk but start to look and start to allocate for that recovery because the recovery I think is going to be longer
lived than the downturn. Jim right now a lot of people talk about high yield because of
their turns. You're getting a high yield right now. Why over 7 percent. Maybe 8 percent. So that is that of course we want to
be right now. I think it is and if you want to be defensive in this
environment. High yield bonds provide about one third of the downside risk that equities do. An important distinction is do
you think of high yield as a fixed income alternative or a risk asset alternative. And we think of it as a risky asset
alternative. So if we go into recession high yield bonds on average have declined just four and a half percent during the
past six recessions whereas U.S. equities are down over 12. And you're getting a current yield to worst of roughly 8 and a half
percent. So when people say how can you buy high yield bonds for going into a recession. The answer is if you're trading out of
equities into them it's a less offensive position but you don't want to trade out of investment grade bonds into a high yield if
you expect we're going to go into recession because if doesn't rate bonds have historically done very well in that environment.
But I think when Jim talks about U.S. equities he's talking about a broad basket. And I think what we need to do in the
shorter term is be more defensive in our equity exposure. So in U.S. equities having more exposure to what I would call
defensives and secular growth including health care and technology. And so that could be actually after is especially
significant losses in technology could provide a slightly different risk reward profile than an overall general U.S. stock
market basket. So Joe what about that. Defensives in equities. Yeah. So the one nuance I would add to that is that we still
like the natural resources sector or commodities oriented energy stocks for example. They're a nice hedge against our number one
risk case which is sticky inflation. We don't know when these supply chain problems are going to get fixed. You keep hearing
about more issues in the energy patch. For example what's going on in the Ukraine and the big steel production facility in
Mariupol that is probably shut down. And so they're not able to provide the steel tubing that goes into well exploration. All of
those things tell us we want to have some hedge in energy and we do like technology. That's a recent upgrade for us for the
secular growth reasons. We expect technology to grow its share of GDP over the next decade by roughly double. Well that's
really interesting because there's sort of the bloom has been off the rose or a lot of technology recently after a really
great run sort of go off again. Where are you in technology. Christine I'm very positive on technology. Now I think we need
to be selective. We want to stay away from what I would call spec tech which was actually the first leg of technology to
fall. But there are a lot of great names in that space some of which look like very good buys right now given where valuations
are and given strong cash flow just solid fundamentals in general. Jim you also I know have said that you like
infrastructure investment. What does that look like. So it's a global basket of companies that help provide the
infrastructure to energy to electricity generation to transportation. They generally have got a very good ability to
pass through inflation through price increases. They tend to have a much higher yield than the overall market. So it is a
little bit more of a defensive way to keep some equity exposure but also benefit from the inflationary trends that we've been
experiencing over the longer term trends. Again coming out of whatever
downturn there is here. What do you think is promising. Are we talking about things like green energy. What are we talking
about. So I certainly think there are a lot of different themes that are very exciting. Some are smaller than others. Green
energy is certainly one of them. Cyber security is one of them. But I think I would take a step back and say the bigger picture
is that we're returning to a more normal environment. And when I say no more normal more normal relative to longer term history.
And so that suggests to me an environment in which there is more diversification offered by fixed income higher yield offered by
fixed income but still adequate returns from stocks. We're going through an adjustment period right now. That's not fun. But I'm
very excited about the future and what it holds for investors. Jim Warren all certainly sounds pretty good to me right now. At
the same time how much of that depends upon the Fed not overreacting because some people say the Fed's had a really big
say in the markets thus far getting back to neutral. Fine little bug neutral. Fine. But if we're really going well above that to
four or five percent what is that going to do. Yes so I would define overreacting a little differently I would
say that if they end up doing that it's because inflation has proven to be more persistent and so their action is actually
justified. And that is not going to be a good circumstance for the market. If you think about bear markets there really are
three categories and event driven one which is the least damaging. Secondly you can have one that is more cyclical
oriented and then you can have one that's driven by a financial crisis where credit creation is impaled. If the Fed hikes rates
too much we're definitely going to go from what's an event driven to a cyclical type of recovery. But if you look at the
Fed stress test results over the last 24 hours the banking systems are in really good shape. So we are very unlikely to get
into a structural bear market which could be really damaging.